Smith Int'l (OP/A): Reason to be optimistic about improved relative performance - Goldman Sachs - October 26, 2005
Improved relative stock performance for SII (OP/A) remains contingent on beating expectations, in our view, and several new reasons for optimism emerged from 3Q EPS/ outlook commentary:
(1) sequential incremental margins in fluids - where raw material headwinds have been strongest - rose nicely to 30-35% ex-hurricane,
(2) fluids pricing is turning in non-N. America markets,
(3) favorable repricing of key fluids contracts w/ large majors is visible - some w/ go-fwd inflation protection, +
(4) raw material costs are visible enough for well-respected mgt to be optimistic about further incremental margin improvement.
We are raising 2005-07 EPS ests to $1.48/$2.00/ $2.40 from $1.47/$1.86/ $2.13 due mainly to our higher E&P spending (+20% vs +15%) forecast. Our fair value is $43 (+34% upside potential) + though we are also optimistic about improved performance, we have lowered our multiple assumption by 7% to 21.5x 2006 PE, acknowledging higher raw material risk.
Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Terry Darling, Jerry Revich.
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Previous Goldman Sachs Comments on Smith International:
Smith (OP/A): Still waiting for the breakout quarter
Goldman Sachs July 25, 2005
Message 21541622
Smith Int'l (OP/A): 1Q2005 EPS above expectations, raising estimates + fair value to $85 Goldman Sachs April 25, 2005
Message 21265706
Smith International (OP/A): Raising Estimates + Fair Value to $73 January 30, 2005 Goldman-Sachs
Message 21000548 |
